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Originally Posted by Miss Tick
You say that if you were an investor, who had CDS protection, you certainly wouldn't agree to a default that wasn't going to be technically called a default, I read it as simply lowering the payments to where Greece could afford it, but either way, you also said you should either pay back your debts or suffer real consequences. Don't people who buy bonds, like the hedge funds who bought Greek bonds fall under the category of deserving to suffer real consequences? I mean they bought the bonds promising ridiculous yields from a country that is crumbling. WTF is that about. Well it's about betting against the very bonds they are buying with freaking credit default swaps.
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If an investor has purchased sovereign debt and the appropriate protection via CDS, they should be able to avail of that protection. The issue is that CDS spreads on European sovereign debt were typically priced too low, given the inherent risks.
If I'm an investor with the appropriate insurance policy (which is what a CDS effectively is) then I want the CDS to kick-in when the default occurs. Simple as that.
Quote:
Originally Posted by Miss Tick
Credit default swaps, credit derivatives and derivatives in general have not, to my knowledge, nor to anyone's knowledge that I can find, been around for centuries and they certainly haven't been around in this form. They have been around since the 1990s with increased usage after 2003. They are not better ways to manage risk in my opinion. They are ridiculous ways to eliminate risk for the lender. They are ways to make bets and turn the financial sector into a gambling casino.
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CDS and derivatives have not been around for a long time but off-balance sheet instruments to manage risk which can / have been used for speculation have been around for centuries. These instruments may be more prevalent now but so is the financial services sector, and secondary markets, in general.
We've had casino banking in various forms throughout modern history. As I noted in my earlier post, the South Sea Bubble also destroyed much of the, then, British Empire and, separately, Scottish effectively lost its independence and became a part of the United Kingdom as a result of financial speculation.
The Wall Street crash of 1929 and its after effects is another appropriate example.
Quote:
Originally Posted by Miss Tick
Right now lenders can make loans at will because there is no danger to them, just danger for the poor fools who borrow from them and the rest of the world.
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Whatever manifesto or propaganda you're reading, you're three and a half years out of date here. The ability to securitise lending has been significantly impacted by the example of the off-balance sheet securitisations of residential and commercial mortgages and their value destruction in 2008.
The market isn't there for securitisations with the exception of significantly lower risk assets and, even then, the market is much less liquid.